We investigate the regional fluid flow dynamics in a highly faulted transform area, the Tjörnes Fracture Zone in northern Iceland which is characterized by steep geothermal gradients, hydrothermal activity, and strong seismicity. We simulate fluid flow within the Tjörnes Fracture Zone using a high-resolution model that was based on the available geological and geophysical data and has the aim to represent the complex geological structures and the thermodynamical processes that drive the regional fluid flow in a physically realistic way. Our results show that convective heat flow and mixing of cold and saline seawater with deep hydrothermal fluids controls the large-scale fluid flow. The distribution of faults has a strong influence on the local hydrodynamics by focusing flow around clusters of faults. This explains the nature of isolated upflow zones of hot hydrothermal fluids which are observed in the Tjörnes Fracture Zone. An important emergent characteristic of the regional fluid flow in the Tjörnes Fracture Zone are two separate flow systems: one in the sedimentary basins, comprising more vigorous convection, and one in the crystalline basement, which is dominated by conduction. These two flow systems yield fundamental insight into the connection between regional hydrothermal fluid flow and seismicity because they form the basis of a toggle switch mechanism that is thought to have caused the hydrogeochemical anomalies recorded at Húsavik before and after the 5.8 M earthquake in September 2002.